I fear that we might be over complicating things. I don't mind the power that whales have; I believed they earned it and can use it as they see fit.
My problem is with the power that flagging has to take money away from those who have earned it.
I have said in another comment that I think flagging should be used only for grievous crimes against other individuals or to point out improperly tagged posts.
I think downvoting should not take away any money that was given to the post, but should make it less visible or cause it not to trend as fast.
I fear people are using flags or downvoting purely as retaliatory measures or as a means of bullying. Bullying with the power to take your income should be avoided. That's what government does.
In conclusion, I think flagging and downvoting should play a role in reputation and post visibility, but have nothing to do with earnings that were voluntarily given. Witnesses should be involved in checking that flags are being given appropriately and should be compensated for their role.
P.S. When it comes to this proposal:
Instead the witnesses would be the top accounts by Account Rank that didn’t opt out of being a witness.
I think it should be an opt-in process. I don't think inaction should be considered consent.
Flagging doesn't take money away from people that have earned it, that is like saying that voting for a political opponent takes victory away from the current winner. Nothing is earned until the ballot box closes.